~ Case 2:09-cv-02487-PA-PLA Document 1 Filed 04/09/2009 Page 1 of 24

DAVIS & GILBERT LLP c: C) "" (" ... ,. PAUL F. CORCORAN (Pro hac vice application pending) I r-i r-, = I .:- ~:J =-- 2 PCorcoranúùdglaw.com i -.; :.;. ¡ r- .'-'d .. :: i " V 1740 Broad\vay i ( J ;,) :;u c,-i " 3 New York, NY 10019 ,'-'-, I I I ., Telephone: (212) 468-4800 i ~,..- \. ---; rii 4 Facsimile: (212) 468-4888 ,-,-, ¡ '-03: 0 : : (.;1 () --\ C) 5 VENABLE LLP ::;" '- BEN D. WHITWELL (CaL. Bar No. 138426) r- ~2 +w 6 bwhitwellúùvenable.com ~~j-l JEFFREYlV. TANZER (CaL. Bar No. 129437) 7 jtanzer~venable.com 2049 Century Park East, Suite 2100 8 Los Angeles, California 90067 Telephone: (310) 229-9900 9 Facsimile: (310) 229-9901 10 Attorneys for Plaintiff

11 or- ~ ~ g 12 UNITED STATES DISTRICT COURT ~ r-:i'I en ~~~o13 CENTRAL DISTRICT OF CALIFORNIA ~ ~ g ~ r:~~~~ ~ ;; ~ 14 ~ ci ~ ~ - f~. ',' 02 8 :: -' C" nAt "'~' Pú Z~LU-15 WPP LUXEMBOURG GAMMA ~.. c¡;MâRi;.: _~~ _ ;J t! ?\.l\'J, ~ ~ ~ ;; en ~ ~ 0 16 THRE SARL, on its own behalf and N -' derivatively on behalf of SPOT VERIFIED COMPLAINT FOR 17 RUNR, INC., SECURITIES FRAUD, VIOLATIONS 18 OF CALIFORNIA CORPORATIONS Plaintiff, CODE, BREACH OF FIDUCIARY 19 DUTY, CONSTRUCTIVE TRUST, v. 20 AND BREACH OF CONTRACT 21 SPOT RUNR INC., NICK GROUF, 22 DA VID WAXMAN, DANN RIMER, ROGER LEE, ROBERT PITTMAN, 23 PETER HUIE, BATTERY VENTURS 24 VI, L.P., BATTERY INVESTMENT PARTNRS VI, LLC, BATTERY 25 VENTURS VII, L.P., BATTERY 26 INVESTMENT PARTNERS VII, LLC, INDEX VENTURS III (JERSEY) L.P.,

27 INDEX VENTURS III (DEL A WARE) 28 L.P., INDEX VENTURS III

234554/v.2 COMPLAINT Case 2:09-cv-02487-PA-PLA Document 1 Filed 04/09/2009 Page 2 of 24

1 PARALLEL ENTREPRENEUR FUN 2 (JERSEY) L.P.,

3 Defendants. 4

5 Plaintiff WPP Luxembourg Gamma Three Sarl ("WPP" or "Plaintiff') on its own 6 behalf and derivatively on behalf of Spot Runner Inc. (the "Company" or "Spot 7 Runner") , by its attorneys, Davis & Gilbert LLP and Venable LLP, for its Complaint 8 against defendants Spot Runner Inc., Nick Grouf ("Grouf'), David Waxman 9 ("Waxman"), Danny Rimer ("Rimer"), Roger Lee ("Lee"), Robert Pittman ("Pittman") 10 (Grouf, Waxman, Rimer, Lee and Pittman together the "Directors"), Peter Huie 11 or- ("Huie"), Battery Ventures VI, L.P., Battery Investment Parters VI, LLC, Battery ~ ~ g 12 'I en ~ -t- q: _ Ventures VII, L.P., Battery Investment Partners VII, LLC (the Battery entities together ~~~oI3LU 0 0 ~ i£ci ~-' ~' "Battery"), Index Ventures III (Jersey) L.P., Index Ventures III (Delaware) L.P., Index r:~ q:~u_~ q: ~ 14 ~ ci ~ ~ :: -' C" Ventures III Parallel Entrepreneur Fund (Jersey) L.P. (the Index entities together Z ~ ~ - 15 ""rTi ULU q: Z "Index") (all defendants collectively, "Defendants" or "Insiders"), alleges as follows: ;; ~i3 16 N -' NATURE OF THE ACTION 17 1. WPP brings this action individually on its own behalf and also as a 18 derivative action within the meaning of Rule 23.1 of the Federal Rules of Civil 19 Procedure (the "Federal Rules") on behalf of Spot Runner to enforce the rights of the 20 Company. 21 2. With regard to the derivative claims, WPP has not made demand on the 22 Company for the actions requested in Complaint because demand would be futile. None 23 of the directors of the Company are disinterested and independent because all have 24 engaged in self-dealing in connection with this matter, as alleged below. 25 3. This action brings claims for violation of Section 1 O(b) of the Securities 26 Exchange Act of 1934 and Rule 10b-5 promulgated thereunder; violation of California 27 securities laws; breach of fiduciary duty to Spot Runner, and for the imposition of a 28

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1 constructive trust on the proceeds of improper secondary sales of stock by the majority 2 stockholders; breach of fiduciary duty to WPP as minority stockholder; breach of the

3 Right of First Refusal and Co-Sale Agreement; breach of the Board Observer Rights 4 Agreement.

5 THE PARTIES 6 4. WPP is a Luxembourg corporation, which maintains its principal place of 7 business at Rue Heine, 6, L 1720 Luxembourg, Luxembourg. WPP is a subsidiary of

8 WPP P1c, a global communications agency, with partner companies specializing in all 9 areas of communications, including advertising, direct marketing, and public relations. 10 WPP P1c is the largest media buyer in the world.

1 1 5. Spot Runner is a Delaware corporation which maintains its principal place oor- (J 1 ~ N g 2 of 'I en business at 6300 Wilshire Boulevard, 21st Floor, Los Angeles, CA 90048. Spot ~ -t- q: _ ~ ~ ~ 0 13 LU 0 0 Runner is a start-up media buying corporation which was purportedly developing an ~ i£ci ~-' ~' ~.. q:ii q:U N~ 14 innovative internet platform to allow small businesses to purchase cable and broadcast ~"")- ci ~ -- ~ :: -' C" Z ~ ~ - 15 TV advertising services online. ""rTi U LU q: Z

;; ~N -'r3 16 6. Upon information and belief, defendant Nick Grouf is a resident of 17 California. Grouf is a founder of Spot Runner, its current Chief Executive Officer

18 (CEO), and Chairman of the Board of Directors. Groufwas CEO and Chairman of the 19 Board of Directors at all times relevant to this action. 20 7. Upon information and belief, defendant David Waxman is a resident of

21 California. Waxman is a founder of Spot Runner, its current Chief Technology Officer

22 its Board of (CTO), and a member of Directors. Waxman was a director of the 23 Company at all times relevant to this action.

24 8. Upon information and belief, defendant Danny Rimer is a resident of the

25 United Kingdom. Rimer is a member of Spot Runner's Board of Directors. Rimer was 26 a director of the Company at all times relevant to this action. 27 9. Upon information and belief, defendant Roger Lee is a resident of

28 California. Lee is a member of Spot Runner's Board of Directors. Lee was a director

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1 of the Company at all times relevant to this action. 2 10. Upon information and belief, defendant Robert Pittman is a resident of

3 New York. Pittman is a member of Spot Runner's Board of Directors. Pittman was a 4 director of the Company at all times relevant to this action. 5 11. Upon information and belief, defendant Peter Huie is a resident of

6 California. Huie is General Counsel to Spot Runner. Huie was General Counsel to the 7 Company at all times relevant to this action. 8 12. Upon information and belief, defendant Battery Ventures VI, L.P. is a 9 limited partnership with its principal place of business at 2884 Sand Hil Road, Suite

10 101, Menlo Park, CA 94025.

1 1 13. Upon information and belief, defendant Battery Investment Partners VI, or- ~ ~ ~ 12 LLC, is a Delaware corporation with its principal place of business at 2884 Sand Hil .. i- ~ ~ ~ ~ g 13 Road, Suite 101, Menlo Park, CA 94025. ~ 't ~ ~ ; ~ ~ ~ 14 14. Upon information and belief, defendant Battery Ventures VII, L.P. is a ~ g¡' ~ ~ Z ~ g !2 15 partnership with its principal place of business at 2884 Sand Hil Road, Suite 101, ~ t5 ~ ;; ~ ~ 16 Menlo Park, CA 94025. 17 15. Upon information and belief, defendant Battery Investment Partners VII,

18, LLC is a Delaware corporation-with its principal place of business at 2884 Sand Hil 19 Road, Suite 101, Menlo Park, CA 94025. 20 16. Upon information and belief, defendant Index Ventures III (Jersey) L.P. is 21 a partnership with its principal place of business at No. 1 Seaton Place, St. Helier, 22 Jersey JE4 8Y J, Channel Islands, England. 23 17. Upon information and belief, defendant Index Ventures III (Delaware) L.P.

24 is a limited partnership with its principal place of business at its principal place of 25 business at NO.1 Seaton Place, St. Helier, Jersey JE4 8Y J, Channel Islands, England. 26 18. Upon information and belief, defendant Index Ventures III Parallel 27 Entrepreneur Fund (Jersey) L.P. is a limited partnership with its principal place of 28 business at NO.1 Seaton Place, St. Helier, Jersey JE4 8Y J, Channel Islands, England.

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JURISDICTION AND VENUE 2 19. This Court has jurisdiction under the securities laws of the United States,

3 15 § U.S.C. 78aa, and under the Judicial Code of the United States, 28 U.S.C. § 1331.

4 This Court has supplemental jurfsdiction over WPP's state law claims under 28 U.S.C.

5 § 1367(a).

6 20. Venue is appropriate in the Central District of California under 28 U.S.C.

7 §§ 1391(b) and 1401 because a substantial part of the events and omissions giving rise 8 to the claims occurred there, and because the May 2007 Stock Purchase Agreement

9 fixes the federal or state courts of the County of Los Angeles, California as the venue

10 for lawsuits arising out of the Agreement, and under 15 U.S.C. § 78aa because some of 11 the defendants are found in and/or transact business in this District. or- ~ ~ g 12 21. This individual and derivative action is not a collusive one to confer ~ i-:i'I en the United States which it would not otherwise have. ~ ~ i ~ 13 jurisdiction on a Court of ; ~ ~ ~ 14 FACTS COMMON TO ALL CLAIMS ..~ :)i; wui .. Õ Z ~ g !2 15 22. Spot Runner was founded in 2004 by Adam Shaw ("Shaw"), Grouf and ~ ~ ~ ;; ~ g 16 Waxman (collectively the "Founders"). It is a "start-up" company reliant on 17 investments by venture capital funds and has yet to make a profit from the sale of 18 products or services.

19 23. Spot Runner's purported main product, stil in development, is an internet 20 media-buying platform called Project Malibu, which it promotes as an innovative way 21 for small businesses to purchase cable and broadcast TV advertising services online. 22 24. Upon information and belief, before seeking any public financing of the 23 company, Grouf, Waxman and Shaw awarded themselves approximately 31 milion, 3.5

24 milion and 435,000 shares of the Company, respectively, with little or no investment of 25 cash.

26 25. Battery and Index are the holders of Series A and Series B preferred stock

27 of Spot Runner, having acquired approximately 14.8 milion and 14.7 milion shares 28 respectively in early 2006 for a cash investment of approximately $6 milion each.

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26. Battery and Index's ownership of Series A and B preferred stock make 2 them the majority preferred stockholders in the Company. When acting together and in

3 concert with the Founders, they, as a group, hold the majority of the voting shares in the 4 Company.

5 27. Pursuant to Battery and Index's investment in the Company, Spot Runner

6 agreed with Battery and Index that each would have the right to appoint one member of

7 Spot Runner's Board of Directors. 8 28. Index appointed Rimer as its representative to Spot Runner's Board of

9 Directors.

10 29. Battery appointed Lee as its representative to Spot Runner's Board of 11 Directors. or- ~ ~ g 12 'I en 30. At all relevant times, the Board of Directors of the Company (the "Board") ~ i- ~ ~~~o13LU 0 0 consisted of five members: Grouf, Waxman, Rimer sitting as the Index representative, ~ ~~. ~ ~q:q:~14.. ii U N Lee sitting as the Battery representative, and Robert Pittman (the "Directors" or ~"")- a: ~ .- ;: :: -' C" Z~~-15 "Director Defendants"). ""rTi ULU q: Z

;;~r3N -' 16 WPP's investment in Spot Runner 17 31. In August 2006, Spot Runner decided to raise additional capital and held

18 another' round of financing ("the Series C Financing Round"). WPP invested in Spot 19 Runner in this round on or around August 29,2006.

20 32. WPP purchased 2,710,027 shares of Spot Runner Series C preferred stock

21 at $3.69 per share for a total investment of approximately $10 milion. At the time, this 22 investment gave WPP approximately 62 percent of the class of Series C preferred stock,

23 or about 4 percent of the outstanding stock of Spot Runner on a fully diluted basis.

24 33. WPP's August 2006 purchase of Series C preferred stock made it the 25 largest single investor in Spot Runner at the time.

26 34. To protect its investment, WPP negotiated with Spot Runner for "Board 27 Observer Rights," in which it would have the opportunity to attend all of Spot Runner's 28 Board meetings and be provided any information that the Board members received. 6 234554/v.2 COMPLAINT Case 2:09-cv-02487-PA-PLA Document 1 Filed 04/09/2009 Page 7 of 24

1 35. WPP and Spot Runner entered into a letter agreement (the "Board 2 Observer Rights Agreement") on or about August 29,2006.

3 36. The Board Observer Rights Agreement provides that: 4 The Company and WPP wil mutually agree (which agreement shall not be unreasonably withheld or delayed by 5 the Company) upon a WPP representative (the "Observer") 6 who shall be entitled to attend all meetings of the Company's 7 Board of Directors (the "Board") in a non-voting, observer capacity. 8

9 37. It further provides that: The Company shall provide to the Observer, concurrently 10 with the members of the Board, and in the same manner, 11 notice of each meeting of the Board and a copy of all oor- (J ~ ~ ~ 12 materials provided to the members of the Board.... ~ i-:i ~~~o13 ~ ~ g ~ 38. To protect the interests of the Company and the holders of the Series A, r:~ ~~~~ ;; ~ 14 ~ ci ~ ~ Series B and Series C preferred stock (the "Investors"), in August 2006, the Investors Z ~:: ~-' ("- 15 ~ ~ ~ also entered into the Second Amended and Restated Rights of First Refusal and Co-Sale ;;~r3 16 N -' Agreement (the "ROFR and Co-Sale Agreement") with the Company and the Founders. 17 39. The ROFR and Co-Sale Agreement provides that before any shares of Spot 18 Runner common stock could be sold or otherwise transferred by a Founder, "the 19 Company shall have a right of first refusal (the "Right of First Refusal") to purchase 20 ' such shares (the "Offered Securities")..." (§ 1.1) ("Company's Right of First Refusal"). 21 40. The ROFR and Co-Sale Agreement further provides that if the Company 22 does not exercise its rights of first refusal, then each Investor (also defined in the 23 Agreement as it is herein to mean the "purchasers of the Company's preferred stock") 24 shall have the right, upon notice to the Founder at any time 25 within forty (40) days after receipt of the Transfer Notice (the 26 "Purchase Right Period") to purchase its Pro Rata Share of all, or such lesser amount as desired, of such Offered Securities 27 not purchased by the Company or Nick Grouf at the Offered 28 Price and upon the same terms (or terms as similar as

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reasonably possible) upon which the Founder is proposing or is to dispose of such Offered Securities (the "Purchase 2 Right"), and the Founder shall sell such Offered Securities to 3 the Investors pursuant to such terms. 4 (§ 1.7) ("Investors' Purchase Right") 5

6 41. The ROFR and Co-Sale Agreement also provides that if the right of first 7 refusal is not exercised, "each Investor shall have the right to participate in any sale to a 8 Proposed Transferee upon the same terms and conditions as set forth in the Transfer

9 Notice..." (§ 2.1, "Right to Participate")

10 42. The ROFR and Co-Sale Agreement thus provides that each Investor could 11 sell their shares in the Company pro-rata with any disposition of common stock by the oor- (J ~ N g 12 'I en Founders. ~ i-:i ~~~o13 ~ ~ ~ ~ 43. The ROFR and Co-Sale Agreement provides that the Founders were ~ ~ ;¡ ~ 14 required to notifY the Company and the Investors of any potential sale and of their ~r:~~~ ci ~ ~ :: -' C" Z ~ ~ - 15 rights by written notice. Specifically, the Agreement provides that ~ ~ ~ ;; ~ (f 16 N00 -' Before the transfer of any Offered Securities, the Founder 17 shall deliver to the Company... and the Investors a written notice (the "Transfer Notice") stating: (i) the Founder's bona 18 fide intention to sell or otherwise transfer such Offered 19 Securities; (ii) the name of each proposed purchaser or other transferee (a "Proposed Transferee"); (iii) the number of 20 Offered Securities to be transferred to each Proposed 21 Transferee; and (iv) the bona fide cash price orother consideration for which the Founder proposes to transfer the 22 Offered Securities (the "Offered Price"). The Founder shall 23 offer the Offered Securities at the Offered Price first to the Company, next to Nick Grouf(ifthe Founder is Adam Shaw 24 or David Waxman and if Nick Groufis then an employee of

25 the Company, the Chairman of the Board of Directors or a member of the Board of Directors) and finally to the 26 Investors. 27 28 (§ 1.2) ("Investors' Notice Rights")

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2 44. The ROFR and Co-Sale Agreement further provides that the Agreement

3 can only be amended or waived 4 by written instrument signed by the pary against whom enforcement of any such amendment, waiver, or discharge or 5 termination is sought, 6

7 but then contains a proviso that

8

9 the holders of sixty percent (60%) of the Shares held by the 10 Investors voting together may waive, discharge, terminate, modify or amend, on behalf of all Investors, any provisions i 1 hereof.. .. oor- (J i ~ N g 2 ~ i-:i'I en ~~~o13 (§ 3.9) ("Amendments or Waivers") ~ ~ ~ ~ r:~u~~ ~ ;; ~ 14 ~ g¡ ~ ~ The Defendants' uPump and Dump" Scheme Z~g!215 ~ ~ ~ 45. The Defendants operated the Company from its inception for their own ;; '! en 16 N00 -' benefit instead of the best interests of the Company and its stockholders. Rather than 17 working to make Spot Runner a successful and profitable venture, they perpetuated a 18 "pump-and dump" scheme in which they aggressively promoted the Company to new 19 investors (often by promoting that WPP was an investor in and supporter of the 20 Company) and then sold new investors large quantities of their own secondary shares at 21 ever-increasing valuations. Such secondary sales were accomplished surreptitiously and 22 without the disclosures to Investors required by the controlling Investor agreements or 23 the federal and state securities laws. 24 46. Between February, 2006 and March, 2008, the Director Defendants, acting 25 in concert with the Class A and Class B stockholders Battery and Index, and the 26 General Counsel, Peter Huie, engaged in a scheme or artifice to defraud WPP and other 27 investors in the Company by surreptitiously usurping corporate opportunities and 28

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selling off substantial quantities of their personal sto.ckholdings in the Company, in

2 violation of their fiduciary duties to the Company and the Investors, and in violation of

3 federal and state securities laws.

4 47. As a part of said scheme, the Defendants, acting out of self interest, and in

5 total disregard of their fiduciary obligations to the Company and the Investors,

6 conspired and agreed together to waive the rights of the Company and the Investors

7 under the ROFR and Co-Sale Agreement, and to sell off large quantities of their 8 personal stock holdings in the Company without disclosure or notice to the Investors as

9 required by the Agreement. 10 48. In order to accomplish their objectives, and to prevent the victim Investors 11 from discovering the fraudulent scheme, the Defendants surreptitiously waived the or- ~ ~ ~ 12 rights of the Company and Investors under the ROFR and Co-Sale Agreement. On ~ i-:i ~ ~ ~ g 13 multiple occasions when the Defendants were usurping a corporate funding opportunity ~ ~ ~ ~ ; ~ ;J ~ 14 in order to sell their own shares instead, the Director Defendants waived the rights of "l.. :)i; wui ..Õ Z ~ g !2 15 the Company under the ROFRand Co-Sale Agreement without disclosing the waiver at ~ ~ ~ ;; ~ g 16 any Board of Directors meeting, thereby depriving WPP of its rights as a Board 17 observer of any information about the proposed waivers. Similarly, on each occasion 18 on which the Defendants sold their shares in violation of the Investors' rights under the 19 ROFR and Co-Sale Agreement, any waiver of those Investor rights was accomplished 20 without any disclosure to the other Investors of a vote or waiver under paragraphs 3.1

21 and 3.9 of the ROFR and Co-Sale Agreement. 22 49. Pursuant to said fraudulent scheme, the Defendants improperly sold more

23 than $54 million of common shares of the Company in violation of the rights of the 24 Company and the Investors, and at a time when the Company remained a start-up 25 operation in need of venture capitaL. 26 50. Upon information and belief, the Director Defendants authorized the 27 Founders and Battery and Index to engage in these secondary share sales in violation of 28 their fiduciary duties to the Company.

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1 51. Upon information and belief, the Director Defendants deliberately 2 conducted this process outside of formal Board meetings in order to prevent Board

3 observer WPP from discovering the existence or magnitude of the secondary sales.

4 52. The Director Defendants deliberately omitted any mention of the 5 Founders' secondary share sales at any Board meeting. Nor did they distribute any 6 financial statements to WPP in its position as a Board observer at any time in 2006- 7 2008.

8 53. The Defendants, acting in concert, deliberately failed to disclose the 9 Founders' secondary share sales to WPP, and in one instance, deliberately 10 misrepresented to WPP that there were no secondary share sales occurring by the

11 Founders or existing Investors when in fact there were. or- ~ ~ g 12 'I en 54. Upon information and belief, the Director Defendants, acting in their own ~ .t- q: _ ~ ~ ~ 0 13 LU 0 0 self- interest, also waived the Company's rights of first refusal under Section 1.2 of the ~ ~ :3 ~ 'X~ q: ~u.~ q: ~ 14 ROFR and Co-Sale Agreement, in violation of their fiduciary duties to the Company. ~ ~ ~ ~ Z ~ g ~ 15 55. In furtherance of the scheme, Battery and Index also used their position as ""rTi ULU q: Z

;;~r3N -' 16 60% owners of the Investors' preferred shares to attempt to waive all the rights of other 17 Investors, including WPP, under the ROFR and Co-Sale Agreement, including the 18 notice rights that would have informed the Investors of any proposed secondary share 19 sales by the Founders an'd selling Investors. 20 56. Upon information and belief, Battery and Index conspired with the 21 Director Defendants to waive the rights of other Investors under the ROFR and Co-Sale

r 22 Agreement in return for the Company placing Battery and Index's shares in the 23 secondary sales. 24 57. This attempted waiver was made without the required vote of all the 25 Investors that were party to the ROFR and Co-Sale Agreement in order to prevent the 26 other Investors from learning of the scheme.

27 58. With the exception of the last sale in March 2008, WPP never received 28 prior notice of any of the Defendants' secondary sales of Company stock, either in its

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1 capacity as Board observer or as a Preferred Stockholder.

2 The Spring 2006 sales

3 59. In early 2006, before WPP invested in the Company, the Founders sold off

4 milions of dollars of their common shares. In or around February and March 2006, 5 Grouf sold approximately 4.7 milion shares at $1.64 per share for proceeds of 6 approximately $7.2 milion. Waxman also sold 527,249 shares for $811,963 and Shaw

7 sold 277,498 shares for $427,347.

8 60. Significantly, WPP was not informed that the Founders had sold these 9 shares when it invested in Spot Runner in the Series C Financing Round in August

10 2006. That omission was materiaL. Had WPP known of the Founders' sales, WPP 11 would have reconsidered its investment in the Company. The Founders' sales of their ~ ~ j 12 own shares would have been material to WPP because such sales were wholly at odds ~ i-:i ~ ~ ~ ~ 13 with the venture capital fundraising b~ing done for a start-up company, reduced the ~ ci -' . r: ~ ~ ~ 14 Founders' personal stake in the Company's success, and suggested that the Founders .. ci ~ ~ Z~ :: ~ -J~ M- 15 did not believe in the Company or the products it had under development. ~ ~ ~

;; ~N -'r3 16 The October 2006 sales 17 61. Shortly after WPP invested $10 milion in the Series C Financing Round, 18 in October 2006, Founders Grouf and Waxman again sold shares without disclosure to 19 WPP. As first revealed in March 2009, in October 2006, Groufsold 880,761 shares of 20 his Company common stock at $3.69 a share for $3,250,008, and Waxman sold 203,250

21 shares of his Company common stock at $3.69 for $749,993. 22 62. WPP received no notice of such Founder sales under the ROFR and Co- 23 sale Agreement, and was wholly unaware of these sales, even though WPP had Board 24 observer rights and the right under the ROFR and Co-Sale Agreement to receive notice 25 of any proposed sale by the Founders. 26 The May 2007 Sales

27 63. In the spring of 2007, the Company held another round of common stock

28 financing (the "Common Stock Financing Round").

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1 64. Unbeknownst to WPP, Grouf and Waxman also secretly sold their shares

2 at that time, along with Battery and Index (the "Spring 2007 Sales"). According to

3 admissions made to WPP in March 2009, at the time of the Spring 2007 sale, Grouf

4 sold 525,939 shares of his Company common stock at $4.66 a share for $2,450,876,

5 Waxman sold 123,392 shares of his Company common stock for $575,007, and Battery

6 and Index both sold 525,939 shares of their converted Company stock for $2,450,876 7 each.

8 65. As part of the fraudulent scheme, in May 2007, Defendants caused Spot 9 Runner to misrepresent to WPP that there were no sales of secondary shares occurring. 10 66. On May 10,2007 WPP received a letter (the "May 10 letter") from Spot

11 Runner informing it that the Company had sold shares of common stock to an oor- (J ~ N g 12 institutional investor. The letter further informed WPP that the investor "has expressed ~ i-:i'I en ~~~o13 a desire to purchase additional shares of common stock. The Company currently does ~ ~ ~ ~ ~ ~;; m r:~u~14 not need additional capital but has offered to help facilitate sales of common stock by ~ ~ ~ ~ z~g-i5 existing stockholders (if ~ ~ ~ possible)." ;; '! Ul 16 N00 -' 67. The May 1 0 letter further stated that: 17 Please note that we are notifying all preferred stockholders

18 and the founders of the Investor's desire to purchase additional shares of common stock. In order to ensure an 19 orderly and efficient process, we wil faciltate by allocating, 20 on a pro rata basis, the Investor's demand among the notified stockholders, who have indicated an interest to selL. There is 21 no guarantee, however, that the Investor wil be wiling to 22 purchase any or all of the shares any of the notified stockholders may decide to selL. 23 24 68. The May 10 letter then asked WPP to return a form indicating whether it 25 was interested in selling shares to the investor. 26 69. The May 10 letter gave no notice that Grouf, Waxman, Battery or Index 27 sold or were intending to sell shares.

28 70. On May 21, 2007, Alexander Barr, counsel to WPP, e-mailed Peter Huie,

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1 general counsel of Spot Runner, to inquire about the share sale notice in the May 10 2 letter. Huie was specifically asked:

3 "Is there an existing investor and/or founder selling existing shares related to this offering? If so, who is sellng shares and 4 how many shares are they sellng?" 5

6 71. WPP was assured by reply e-mail from Mr. Huie that same day that 7 "(tJhis offering does not involve the sale of any existing shares. It is an entirely new issuance by the Company." 8 9 72. Relying on Mr. Huie's representation that no existing Investors or 10 Founders were selling shares, WPP decided to purchase additional shares of Spot

11 Runner stock to maintain its percentage share of the Company's stock. oor- (J ~ N g 12 73. On or about May 24, 2007, WPP purchased 383,111 shares of common ~ i-:i'I en ~~~oI3 stock from the Company at $4.66 per share for a total investment of$I,785,297 in this ~ ~a:.. ~ ~i ~ ~ ~ 14 round. ø)-~ ci ~._ ~ :: -' C" Z ~ ~ - 15 74. Had WPP known the Founders and the Insiders were selling large amounts ~ ~ ~ ;; ~ en 16 N00 -' of their stock, WPP would not have purchased the additional 383,111 shares of stock 17 from the Company in May 2007. 18 The January 2008 19 75. In January 2008, without the required notice to WPP, Grouf, Waxman, 20 Battery and Index, along with Director Pittman, again surreptitiously sold substantial

21 quantities of their Spot Runner stock. WPP only recently discovered in March 2009, 22 that the January 2008 sale shares included the following amounts:

23 Seller N urn ber of Shares Proceeds 24 Nick Grouf 1,126,575 $6,759,450 25 David Waxman 119,109 $714,654 26 Battery 750,853 $4,505,118 27 Index 750,853 $4,505,118 28

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1 Robert Pittman 29,653 $177,918 I 2

3 The March 2008 Sales

4 76. Finally, in March 2008, Grouf, Waxman, Battery and Index, along with

5 Director Pittman again sold Spot Runner shares, in the following amounts:

6 7 Seller Number of Shares Proceeds 8, Nick Grouf 1,183,632 $7,101,792 9 David Waxman 125,142 $750,852 10 Battery 788,882 $4,733,292 11 Index 788,882 $4,733,292 0'" ~ ~ g 12 'I en Robert Pittman 31,155 ~ .t- q: _ $186,930 "'~~o13LU 0 0 ~ i£ ~ ~ i ci -' ' - q: q: ~ 14 ~r:~~~ ci ~ ~ 77. On this occasion, WPP was given notice of the proposed March 2008 :: -' M Z ~ ~ - 15 ""rTi ULU q: Z secondary share sales by the Founders, the Directors and Battery and Index, and was ;; ~r3 16 N -' offered an opportunity to sell shares pro rata with the Founders at that time. But WPP 17 was given no notice at the time that the same insiders had previously sold almost $40 18 milion in Company stock, or that the financial condition of the Company should have 19 precluded such sales.

20 78. Undisclosed to WPP at the time, the proceeds from the sales of

21 Defendants' secondary shares through March 2008 were over $54 million.

22 79. The Board had secretly permitted the Founders and the favored Defendant 23 Investors to sell their shares even though the Company would have greatly benefited 24 from additional capitaL.

25 80. The Defendants, as members of the Board and majority Investors, 26 breached their fiduciary duties to the Company by taking this opportunity to raise 27 capital away from the Company so that they could profit from the sales of their own

28 shares. 15 234554/v.2 COMPLAINT Case 2:09-cv-02487-PA-PLA Document 1 Filed 04/09/2009 Page 16 of 24

1 81. By January 2008, WPP was becoming increasingly frustrated with the

2 opacity of the Company's management which went against their assurances at the time 3 Wpp initially invested that management would operate the Company in a transparent 4 fashion. WPP had also heard rumors that Insiders had sold off stock and WPP was 5 seeking to obtain additional information about such sales. All information requests

6 were rebuffed.

7 82. In March 2008, WPP was given the opportunity to sell shares only after 8 complaints to the Company that it was not happy with its investment in Spot Runner.

9 Grouf advised that because WPP was unhappy with the Company, he would help place 10 the sale ofWPP's shares. However, Spot Runner only permitted WPP to sell 152,273 11 of its Company shares in March 2008 for approximately $900,000, while the 0.. ~ ~ ~ 12 Defendants took the opportunity to sell almost 2,917,652 of their Company shares in ~ i- ~ ~ ~ i ~ 13 March 2008 for approximately $17.8 milion. They did so without disclosing to WPP ; ~ ~. ~ 14 that they had just sold another $18 millon in Spot Runner common stock in January ~ ci ~ ~ :: -' C" ~ ~ ~ - 15 2008, or that they had already received almost $40 milion as a result of their sales of ;; ~ g 16 Company stock in previously undisclosed sales. 17 83. To date, Grouf and Waxman have received approximately $30 milion 18 from sales of Company stock in breach of their fiduciary duties to the Company, and to 19 WPP as a minority Investor under the ROFR and Co-Sale Agreement.

20 84. To date, Battery and Index have received $24 million from sales of

21 Company stock in breach of their fiduciary duty to the Company, and to WPP as a 22 minority Investor.

23 85. Although often requested by WPP, Spot Runner has never provided 24 audited financial statements to WPP in its capacity as a Board observer or preferred

25 stockholder. However, it has recently disclosed that the financial performance of the

26 Company through 2007 and 2008 did not justify the Defendants' extraordinary 27 diversion of opportunity for additional funding for the Company which has recently 28 come to light.

16 234554/v.2 COMPLAINT Case 2:09-cv-02487-PA-PLA Document 1 Filed 04/09/2009 Page 17 of 24

1 The March 2009 Admissions

2 86. In March 2009, the Defendants admitted to WPP the extent of their

3 previously undisclosed stock sales, and the financial condition of the Company which 4 should have precluded any such sales. In addition to disclosing the stock sales listed

5 above, they revealed for the first time that Spot Runner's operations in 2007 and 2008 6 resulted in an approximate $35 million loss to the Company for the 2007 fiscal year, 7 and an approximate $45 milion loss to the Company for the 2008 fiscal year; that the

8 total Company revenues for each year amounted to approximately $5 milion for the 9 2007 fiscal year and $9 milion for the 2008 fiscal year; and that the Company had 10 expended all but approximately $20 millon of its investor capital, while stil losing 11 money at the rate of $35-45 milion a year. Upon information and belief, the Company

~ ~ i 12 has raised approximately $100 milion from investors to date, and has alre.ady expended .. i-:i .. ~ ~ g 13 approximately $80 milion of those Investor dollars without completing development of ~ ~ ~ g¡ ; ~ ~ ~ 14 its principal product. Under the circumstances, the Defendants' diversion of $54 ~ ci ~ ~ Z ~ g !2 15 milion in available investment fuds to their own pockets was wholly unjustifiable, and ~ ~ ~ ;; ~ g 16 in blatant breach of their fiduciary duties to the Company and its stockholders.

17 COUNT ONE 18 Securities Fraud in Violation of Securities Exchange Act Section IO(b) 19 and Rule IOb-5 Promulgated Thereunder 20 (Against all Defendants) 21 87. WPP hereby realleges and incorporates by reference paragraphs 1 through

22 86 of the Complaint as if fully set forth herein. 23 88. The Spring 2007 sale of shares of Spot Runner stock to WPP constituted a 24 sale of securities under Exchange Act Section 1 O(b), 15 U.S.C. § 78j(b), and Rule 10b- 25 5, 17 C.F.R. § 240.1 Ob-5, promulgated thereunder. The said securities sale took place 26 in and affected interstate commerce. 27 89. As alleged in more detail, supra, in connection with that securities sale, 28 Defendants engaged in a scheme or artifice to defraud. Defendants caused Spot Runner

i 7 234554/v.2 COMPLAINT Case 2:09-cv-02487-PA-PLA Document 1 Filed 04/09/2009 Page 18 of 24

1 to falsely represent to WPP that neither the Founders nor the existing stockholders of 2 Spot Runner were selling shares of Spot Runner stock in May 2007, when in truth and

3 in fact, they knew that Grouf, Waxman, Battery and Index were sellng substantial 4 quantities of Company stock at the time.

5 90. In purchasing an additional 383,111 shares of Spot Runner stock in May 6 2007, WPP reasonably relied on Defendants' representations that Grouf, Waxman,

7 Battery and Index were not selling their shares of the Company, and WPP would not 8 have acquired the additional Company stock had they known of those sales.

9 91. By misrepresenting that Grouf, Waxman, Battery and Index were not 10 sellng stock, Defendants have engaged in acts of fraud and deceit in the sale of Spot

11 Runner shares to WPP. or- ~ ~ ~ 12 92. As a proximate result of Defendants' fraudulent acts, WPP has suffered ~ i-:i ~ ~ i ~ 13 substantial damages in an, amount to be determined at trial, but not less than $1.7 ; ~ ~. ~ 14 milion, the purchase price for WPP's purchase of additional shares based on ~ ci ~ ~ :: -' C" Z ~ ~ - 15 Defendants' misrepresentations. ~ ~ ~

;; ~g 16 COUNT TWO 17 Violation of California Corporations Code 18 Sections 25401 and 25501 19 (Against Spot Runner) 20 93. WPP hereby realleges and incorporates by reference paragraphs 1 through 21 92 of the Complaint as if fully set forth herein.

22 94. As alleged in more detail supra, Defendant Spot Runner violated Section 23 25401 of California Corporations Code, thereby entitling Plaintiff to recover damages 24 pursuant to Section 25501.

25 95. As a direct and proximate result of Spot Runner's wrongful conduct, WPP 26 has suffered substantial injuries in an amount to be determined at trial, but not less than 27 $1.7 million. 28

i 8 234554/v.2 COMPLAINT Case 2:09-cv-02487-PA-PLA Document 1 Filed 04/09/2009 Page 19 of 24

COUNT THREE 2 Violation of California Corporations Code Section 25504 3 (Against the Director Defendants, Huie, Battery and Index) 4 96. WPP hereby realleges and incorporates by reference paragraphs 1 through 5 95 of the Complaint as if fully set forth herein.

6 97. The Director Defendants, Huie, Battery and Index acted as controllng

7 persons of the Company within the meaning of section 25504 of the California 8 Corporations Code.

9 98. By reason of such wrongful conduct violative of California Corporations 10 Code section 25401, the Directors, Huie, Battery and Index are liable pursuant to

11 section 25504 of the California Corporations Code. or- ~ ~ ~ 12 99. As a direct and proximate result of their wrongful conduct, WPP has ~ i- ~ ~ ~ i ~ 13 suffered substantial injuries in an amount to be determined at trial, but not less than ; ~ ~ ~ 14 $1.7 million. .. i; ui õ Z"l :J W ,-~ g!2 15 COUNT FOUR ~ ~ ~ ;; ~ S 16 Violation of California Corporations Code Section 25504.1 17 (Against the Director Defendants, Huie, Battery and Index) 18 100. WPP hereby realleges and incorporates by reference paragraphs 1 through 19 99 of the Complaint as if fully set forth herein. 20 101. The Director Defendants, Huie, Battery and Index materially assisted Spot

21 Runner in violating section 25401 of the California Corporations Code. 22 102. By reason of their wrongful conduct, the Directors, Huie, Battery and

23 Index are jointly and severally liable pursuant to section 25504.1 of the California 24 Corporations Code. 25 103. As a direct and proximate result of their wrongful conduct, WPP has 26 suffered substantial injuries in an amount to be determined at trial, but not less than 27 $1.7 milion. 28

19 234554/v.2 COMPLAINT Case 2:09-cv-02487-PA-PLA Document 1 Filed 04/09/2009 Page 20 of 24

1 COUNT FIVE 2 Breach of Fiduciary Duty to Spot Runner 3 (Derivative Suit Against All Defendants)

4 104. As a derivative claim brought on behalf of the Company, Spot Runner, 5 Inc., WPP hereby realleges and incorporates by reference paragraphs 1 through 103 of 6 the Complaint as if fully set forth herein.

7 105. As directors and majority stockholders of Spot Runner, Defendants are

8 fiduciaries toward Spot Runner and its stockholders and owe to them the duty of

9 faithfully, loyally, diligently, prudently, honestly, and carefully conducting Spot 10 Runner's business. As fiduciaries, they are bound to act toward and deal with Spot 11 Runner and its other stockholders with the utmost fidelity, loyalty, care and good faith. or- ~ ~ ~ 12 106. Defendants have violated their fiduciary duty by usurping from Spot ~ i- ~ ~ ~ ~ g 13 Runner the opportunity to sell shares of its stocks to new investors and instead taking

; ~ ~ ~ 14 those opportunities for themselves. ~::.. i; w..ui Õ Z ~ g !2 15 i 07. Defendants have done so for self-serving, improper and bad-faith reasons, ~ ~ ~

;; ~ g 16 namely, a desire to profit from the sales of their secondary shares. There is no 17 legitimate business justification for the Director Defendants' actions. Defendants have

18 acted wilfully, wantonly and with reckless disregard for the well-being of Spot Runner.

19 108. As a result of the Defendants' actions, Spot Runner has been deprived of 20 significant amounts of capital and is moving swiftly toward insolvency.

21 109. To remedy the Defendants' breach of fiduciary duties to Spot Runner, the 22 Company is entitled to the imposition of a constructive trust on the proceeds of all of 23 the secondary sales concluded by the defendant in violation of their fiduciary 24 obligations to the Company.

25 COUNT SIX 26 Breach of Fiduciary Duty to WPP 27 (Against All Defendants) 28 110. WPP hereby realleges and incorporates by reference paragraphs 1 through zo 234554/v.2 COMPLAINT Case 2:09-cv-02487-PA-PLA Document 1 Filed 04/09/2009 Page 21 of 24

1 109 of the Complaint as if fully set forth herein.

2 111. As directors and majority stockholders of Spot Runner, Defendants are

3 fiduciaries toward Spot Runner and its stockholders and owe to them the duty of

4 faithfully, loyally, diligently, prudently, honestly, and carefully conducting Spot 5 Runner's business. As fiduciaries, they are bound to act toward and deal with Spot 6 Runner and its other stockholders with the utmost fidelity, loyalty, care and good faith.

7 112. The Defendants have also violated their fiduciary duty to WPP by waiving 8 the rights of the Investors of the Company, including WPP, under the ROFR and Co-

9 Sale Agreement.

10 113. The Defendants have done so for self-serving, improper and bad-faith 11 reasons, namely, a desire to profit from the sales of their secondary shares of the or- ~ ~ ~ 12 Company to new investors. There is no legitimate business justification for the .. i-:i

~ ~ i ~ 13 Defendants' actions. The Defendants have acted wilfully, wantonly and with reckless ; ~ ~ ~ 14 disregard for the interests of WPP as a minority Investor. .. i; ui Õ 'l :J W .. Z ~ g !2 15 114. As a result of the Defendants' actions, WPP has been damaged in an ~ ~ ~ ;; ~ g 1617 amount toCOUNT be determined at trial, butSEVEN no less than $11.5 milion. 18 Constructive Trust (California Civil Code Section 2224) 19 (Against All Defendants) 20 115. WPP hereby realleges and incorporates by reference paragraphs 1 through 21 114 of the Complaint as if fully set forth herein. 22 116. Defendants' sales of their shares of Spot Runner stock was a corporate

23 opportunity belonging to the Company.

24 i 17. Defendants violated their fiduciary duties to the Company by 25 misappropriating those opportunities for themselves.

26 118. As a consequence of the Defendants' actions, pursuant to California Civil 27 Code Section 2224, the Court should impose a constructive trust in favor of Spot 28 Runner and its stockholders on all funds received by Defendan.ts from their sales of

2) 234554/v.2 COMPLAINT Case 2:09-cv-02487-PA-PLA Document 1 Filed 04/09/2009 Page 22 of 24 2shares COUNT of Spot Runner stock. EIGHT 3 Breach of Contract 4 (Against Grouf, Waxman, Battery and Index) 5 119. WPP incorporates by reference paragraphs 1 through 118 of the Complaint 6 as if fully set forth herein. 7 120. The ROFR and Co-Sale Agreement is a binding and valid contract between 8 Grouf, Waxman, Spot Runner and the investors in Spot Runner, including WPP. 9 121. WPP has fulfilled all of its obligations under his Agreement.

10 122. Defendants have violated and breached the Agreement, by, among other 11 things, (i) failing to provide proper notice to WPP of proposed sales by the Founders or- ~ ~ ~ 12 pursuant to Section 1.2 of the ROFR and Co-Sale Agreement; (ii) failing to permit ~ i-:i ~ ~ ~ g 13 WPP to exercise its rights of first refusal or co-sale pursuant to the ROFR and Co-Sale ~ ~,~ ~ 14 Agreement; and (iii) purporting to waive all ofWPP's rights under the ROFR and Co- ~ ci~ ~ Z ~:: -'~ C"~ 15 Sale Agreement and failing to provide notice to WPP of the waiver. ~ ~ ~ ;; ~ g 16 123. By virtue of the breaches of the ROFR and Co-Sale Agreement, WPP has 17 been damaged in an amount to be determined at the time of trial, but no less than $11.5 1918 milion. COUNT NINE 20 (Breach of Contract) 21 (Against the Director Defendants) 22 124. WPP incorporates by reference paragraphs 1 through 123 of the Complaint 23 as if fully set forth herein.

24 125. The Board Observer Rights Agreement is a binding and valid contract

25 between Spot Runner and WPP. 26 126. WPP has fulfilled all of its obligations under this Agreement.

27 127. Director Defendants have violated and breached the Agreement, by, among 28 other things, failing to provide WPP with all information and documents provided to the

22 234554/v.2 COMPLAINT Case 2:09-cv-02487-PA-PLA Document 1 Filed 04/09/2009 Page 23 of 24

Board.

2 128. By virtue of the breaches of the Agreement, WPP has been damaged in an

3 amount to be determined at the time of trial, but no less than $11.5 millon. 4 5 WHEREFORE, Plaintiff WPP Luxembourg Gamma Three Sarl requests 6 judgment as follows: 7 A. On Counts One through Four, awarding WPP damages in an amount to be 8 determined at trial, but no less than $1.7 million; 9 B. On Counts Five and Seven, imposing a constructive trust on all proceeds 10 from Defendants' sales of their shares of Spot Runner stock;

11 C. On Counts Six, Eight and Nine, awarding WPP damages in an amount to o0"- (J ~ ~ ~ 12 be determined at trial, but no less than $11.5 milion; ~ i-:i ~ ~ ~ 0 13 D. A warding attorneys' fees to the extent authorized by contract or statute; ~ ~ g ~ "'~;(giI4 ~r: ci ~ ~ ~ ~ and :: -' C" Z ~ ~ - 15 E. Granting such other and further relief as the Court deems just and proper, ~ ~ ~ ;; ~ g 16 together with the costs and disbursements of this action.

17

18 Dated: April 9, 2009

19 DAVIS & GILBERT LLP 20 PAUL F. CORCORAN 21 VENABLELLP 22 BEN D. WHITWELL 23 JEFFREYM. TANZER 24 25 26 27 28

23 234554/v.2 COMPLAINT Case 2:09-cv-02487-PA-PLA Document 1 Filed 04/09/2009 Page 24 of 24

DEMAND FOR JURY TRIAL 2 Plaintiff WPP Luxembourg Gamma Three Sarl demands a trial by jury as to all 3 issues so triable. 4

5 Dated: April 9, 2009

6 DA vis & GILBERT LLP 7 PAUL F. CORCORAN 8 VENABLELLP 9 BEN D. WHITWELL 10 JEFFREY M. TANZER

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24 234554/v.2 COMPLAINT